Professional Liability in Flux: Key U.S. Claim Trends as of July 2025

By Christopher Fredericks

Halfway through 2025, we’re observing several emerging and recurring trends that are shaping the risk landscape for professional service firms and their insurers. This update explores the key developments driving U.S. professional indemnity claims in the first half of the year

New Administration, New Rules

The Trump Administration has come in and made significant changes to internal federal government operations and its interactions with outside professionals.  Some of these changes have directly impacted “Big Law”, including restricting access to courts and security clearances, and filing EEOC charges. The administration has also cut back on the use of consultants as part of the Department of Government Efficiency’s efforts to trim the budget, with many large consulting firms anticipating billions in funding reductions. This shake-up not only impacts professional service firms, but it is also causing an increase in demand for legal, accounting, consulting, and other professional services to manage these changes. With the increased uncertainty, there is the potential for incorrect advice or charges by clients that professionals failed to anticipate these actions and failed to advise them on how to properly respond. 

Regulatory Landscape Changing

In addition to the direct activity by the White House against regulators and prosecutors, there have also been changes at the top and throughout regulatory agencies. Increased regulation has been the story the last few years for certain professionals, and things have been relatively muted since January with respect to SEC activity against professionals. This may be the new reality in the Post-Jarkesy world, but it could also be that the SEC and PCAOB are keeping their powder dry while it awaits direction from the new SEC chair, who said upon being sworn in that the agency’s focus has changed. Moreover, there are reports that the Department of Justice and/or the White House is getting directly involved in certain criminal investigations, including terminating prosecutors. Additionally, Congress is debating disbanding the PCAOB and reining in/defunding the SEC, so with that uncertainty, the regulatory landscape looks very different than it did four years ago. At the same time, the SEC is not lying down, and they continue to prosecute their actions aggressively. In light of the new administration and new chair, the SEC personnel may be figuring out what the new landscape is themselves, and by being aggressive, they may be swinging for the fences while they still have a ballpark to play in. Still, if the less active regulatory trend continues, then we would expect that professional firms should incur less defense expenses over the next few years dealing with regulatory inquiries, CIDs, subpoenas, etc.

Third Party Litigation Funding

While there is less direct interaction with litigation funders than with plaintiffs and plaintiffs’ counsel, and while their existence is often a mystery, it is clear that third party litigation funding has entered the professional liability space. The concern is that third party litigation funders (“TPLFs”) decide that professional liability is an area like commercial auto policies – which is being specifically targeted by litigation funders – that could be very profitable. Often in commercial auto negligence cases there is a fact pattern where a large tractor trailer is involved in horrific crashes that the plaintiffs’ counsel and litigation funders try to leverage into massive personal injury judgments, including a process to make demands on insurers to settle and then go after them for bad faith after a judgment. TPLFs have not seen that level of involvement for professional liability claims, but it may just be a matter of time.

How TPLFs impacts the claim is not entirely clear as there is not yet a considerable track record, and the level of impact is influenced by the TPLF’s control, e.g. does the litigating funder have ultimate settlement control, or does it need to be just above a certain number. What TPLFs do, whether their involvement is known or not, adds a layer of complexity to negotiations, but also potentially to the case’s valuation. While it shouldn’t, it can, as it is another interested party with a say in the resolution, so even minimal involvement adds complexity. For example, is the funder looking for a specific ROI, or has the funder lost at trial on his last few cases and thus needs a big win, so they let a case go to a jury that otherwise could be settled. Those factors ultimately influence both defense costs and in trying to estimate reserves.

Seeing the risk of what they would describe as adding a “gambling aspect” to the litigation process, there is legislation being drafted and enacted to rein in TPLFs. At present, there are certain court rules that require notifying the court if there is TPLF involved in the case, but the number of courts subject to such rules is currently small but it is expanding.  Recently, the Governor of Georgia signed into law SB69 which requires registration of all litigation financiers operating with the state to register with the Georgia Department of Banking and Finance, provide certain consumer disclosures, and avoid getting involved in strategic decisions in the underlying litigation.  Further, foreign investment is prohibited, litigation financing agreements are required to be in writing and are now discoverable, and TPLFs can no longer obtain recovery larger than that of the plaintiffs themselves. Georgia litigation financiers can also be held jointly and severally liable for sanctions against a party or a lawyer it is supporting. Other states are likely looking to follow the Georgia example and enact litigation in the near future.

Looking forward, the long-term impact of TPLFs in the professional liability space is unclear, as professional liability cases can have very long tails, and it is not clear what a TPLF’s appetite is to wait 5-10 years on some cases and in jurisdictions where legislators are making it harder for TPLFs to operate.

Artificial Intelligence

Presently, there are two main flavors of “AI” claims: 1) a claim that AI was used improperly in providing professional services leading to a negligence claim, or 2) a professional was providing services to an “AI company,” which has run into issues and even possibly filed for bankruptcy. With any new business, there are new risks, and those risks are amplified by an industry that has already had billions of dollars invested and whose very existence supposedly promises a paradigm shift in the way society lives and works. Currently, the biggest AI risk for professional firms appears to be on the investment side, where companies that dove into the industry may be running into issues. When companies fail, creditors, trustees, receivers, and others often look to the company’s professionals for recovery. 

Beyond the standard claims arising from failures in emerging technology, there are increasing risks that AI will also be used to assist or even replace professionals.  There are many bold claims that lawyers and accountants are “going to be replaced”, but the risk of AI hallucination – where an AI program presents false or misleading information as fact – is real, and it has already led to lawyers being sanctioned. This risk, plus the lack of accountability at the end of the day, will make it difficult for ‘AI Replacement Theory’ to bear out. While some functions may be replaced and can lead to improved services, the technology is untested, and it is likely to not be completely foolproof, at least not in our lifetime.

Still, professionals are going to rely on this new and untested technology to their detriment. A number of lawyers have already been sanctioned for using AI to write briefs, and the AI is hallucinating caselaw. The pressures of being an attorney under numerous deadlines presents an ecosystem ripe for shortcuts, and therefore the moral hazard to rely on AI to meet a deadline will be there as long as attorneys are busy. Therefore, it is important for professional firms to have a formal AI policy, and for insurers to ensure that these firms have such a policy and that it is properly implemented.

Post-Covid Catch-Up

The pandemic brought the world to a halt, slowed down everything, and we’ve been playing catch-up since early 2020. During the initial parts of the pandemic, some courts were closed for a time; trial dates and other hearings were pushed; and it was easy for everyone to kick the can – and deadlines – down the road. However, it seems that 2025 is finally the year where judges are pushing to clear their dockets. During the Palisades fires in Los Angeles in January 2025, courts stayed open, and judges refused to push trial dates due to hardships from lost homes; clerks have cited the failure to catch up from the pandemic as the reason for no further delays.  Anecdotally, it seems that courts all over the country are holding deadlines firmer than they have in recent years. This pressure to bring cases to a head could lead to insureds finding themselves suddenly on the eve of trial, and Underwriters need to be prepared for this. 

Additionally, with people working remotely, lacking access to materials and resources in an office or on-site somewhere, there were likely a number of errors or omissions made during the height of the pandemic that are only coming to light right now. We have seen an increase in frequency of notices in the first half of 2025, and we believe this has something to do with it.  

Social Inflation

Studies have shown that “social inflation” or “tort inflation” had driven claim costs higher than they would otherwise have been over the last decade due to a number of factors, including nuclear verdicts, inter alia. Along with economic inflation, the phenomenon is part of the idea that “everything is bigger” these days, including jury verdicts. Another major problem of social inflation is that people generally have difficulty wrapping their heads around a number once it gets ‘too big.’ To a typical lay jury – millions, billions, trillions – to some extent it doesn’t matter – they think that a big company defendant is going to have a lot of money, and jury research suggests that the ability to pay is not always a factor for a juror in deliberating an award. If plaintiffs are asking for a big number, and the judge is not going to be a gatekeeper and keep out speculative and unsupported sometimes 9-figure damage claims, then such cases become extremely dangerous.

In the end, social inflation is a reflection of changes in societal attitudes about entitlement to compensation for injury, and once those attitudes become engrained, then the perception about what certain defendants can pay can change permanently. This may not just be ‘social inflation’ that will go away if economic inflation or other factors improve, and this may just be the way of the world now. Professional firms and their Underwriters need to be aware of these issues and plan their risk management and claims handling accordingly.

The first half of 2025 has already proven to be an active and unpredictable period for professional liability with new administration, new regulators, and new technologies. From regulatory upheaval and political intervention to the increased use of AI and the growing influence of litigation funders, the environment continues to evolve in ways that present new challenges for professionals and their insurers. While some of these developments may ultimately reduce exposure, such as potential regulatory pullbacks, others introduce uncertainty and complexity that could increase both claim frequency and severity. As we look ahead to the second half of the year, it’s clear that staying alert to these trends and adapting quickly will be critical for managing risk effectively in this shifting landscape.